By Sam Nussey
TOKYO, May 8 (Reuters) – Nintendo and Sony both flagged the impact from surging memory prices on their games businesses on Friday, as the artificial intelligence boom constrains chip supply and deepens disruptions across the tech sector.
Memory chip prices doubled in the first quarter alone from the previous quarter and are forecast to climb up to 63% in the current quarter due to AI data centre demand that has impacted supply for smartphones, laptops and automobiles. While top producers Samsung, SK Hynix and Micron have pledged to boost output with billions of dollars of investment, it takes at least a year for a new production line to come online, experts say.
“Super Mario” maker Nintendo said that higher component costs, particularly memory, and the impact of tariffs is expected to add roughly 100 billion yen ($638 million) to costs in the current financial year.
“The very fact that Nintendo felt compelled to act (price increase) suggests the rise in memory costs has become severe enough that it could no longer be absorbed internally – and, crucially, that there is little prospect of those cost pressures easing in the near term,” HSBC analyst Kazunori Ito said.
“This decision likely reflects a sober assessment that waiting for market conditions to improve is not a viable option.”
President Shuntaro Furukawa said the higher component costs, along with factors including exchange rates, were reflected in Nintendo’s decision to hike prices of its Switch 2.
The price of a Japanese language Switch 2 Japan model will go up by 10,000 yen to 59,980 yen, with the gaming device in the U.S. to cost $50 more at $499.99.
With the price hikes, profitability will be roughly unchanged from last financial year, Furukawa told an earnings briefing.
Sony announced in March it would increase prices of the PS5, with the standard version of its gaming device jumping $100 to $649.99 in the U.S.
NINTENDO USERS SEEN AS PARTICULARLY PRICE SENSITIVE
For Nintendo the hikes have risks as the Switch 2 is early in its lifecycle and its casual user base is particularly price sensitive, said Serkan Toto, founder of the Kantan Games consultancy.
“Nintendo is now under more pressure than ever to get more first-party blockbusters out this fiscal year” to boost demand for the system, Toto said.
The firm’s games pipeline is seen as thin, although it has scored a recent hit with “Pokemon Pokopia” and upcoming titles include “Star Fox”.
Nintendo also hiked prices of its older Switch and online gaming services and said its playing cards will move from a listed price to an open price set by retailers.
The company expects to sell 16.5 million Switch 2 units this year, compared to 19.9 million units last year, and 60 million software units.
Sony and Nintendo’s shares have been under pressure in recent months as investors fret about the impact of disruption to supply chains from the AI boom and Iran war on electronic manufacturers’ margins.
Sony, which plans to spend up to 500 billion yen buying back shares, said it sees lower sales but higher profits at its gaming business this financial year.
Sony has secured memory supply for this financial year but prices are expected to continue to be high next year, CEO Hiroki Totoki told an earnings briefing.
The company is looking at ways to reduce costs outside of memory, he said.
PS5 hardware sales are based on the amount of memory Sony can secure at “reasonable prices”, with hardware profitability expected to be similar to a year earlier.
With the PS5 in its sixth year on the market, the profit forecast incorporates investment in Sony’s next-generation platform.
Sony is expected to receive a major boost from the launch of Take-Two Interactive’s delayed “Grand Theft Auto VI”, which is scheduled for release in November.
“Sony’s bottom line stands to benefit significantly from the high-margin software sales and ecosystem engagement this launch should trigger,” Amir Anvarzadeh of Asymmetric Advisors wrote in a note.
($1 = 156.7000 yen)
(Reporting by Sam Nussey; Additional reporting Kritika Lamba and Anton Bridge; Editing by Elaine Hardcastle)
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